Pike Corp - FORM 10-Q - November 10, 2014

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EXCEL - IDEA: XBRL DOCUMENT - Pike Corp	Financial_Report.xls
EX-32.1 - EX-32.1 - Pike Corp	d796334dex321.htm
EX-31.2 - EX-31.2 - Pike Corp	d796334dex312.htm
EX-31.1 - EX-31.1 - Pike Corp	d796334dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32582

LOGO

PIKE CORPORATION

(Exact name of registrant as specified in its charter)


North Carolina		20-3112047
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

100 Pike Way, Mount Airy, NC		27030
(Address of principal executive offices)		(Zip Code)

(336) 789-2171

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 5, 2014, there were 32,086,986 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

PIKE CORPORATION

FORM 10-Q

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014

INDEX


PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
		Condensed consolidated balance sheets	1
		Condensed consolidated statements of operations	2
		Condensed consolidated statements of comprehensive (loss) income	3
		Condensed consolidated statements of cash flows	4
		Notes to condensed consolidated financial statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		25
Item 4.	Controls and Procedures		25

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		27
Item 1A.	Risk Factors		27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		27
Item 6.	Exhibits		28
Signatures			29

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

PIKE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


	September 30, 2014			June 30, 2014
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	24,658		$	989
Accounts receivable, net		95,841			96,850
Costs and estimated earnings in excess of billings on uncompleted contracts		91,444			85,563
Inventories		13,442			12,373
Prepaid expenses and other		8,312			7,029
Deferred income taxes		10,222			10,304

Total current assets		243,919			213,108
Property and equipment, net		174,415			177,743
Goodwill		153,668			153,668
Other intangibles, net		65,645			67,463
Deferred loan costs, net		867			1,111
Other assets		3,199			3,059

Total assets	$	641,713		$	616,152

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	41,505		$	34,961
Accrued compensation		28,631			26,697
Billings in excess of costs and estimated earnings on uncompleted contracts		7,024			6,007
Accrued expenses and other		11,560			10,269
Current portion of insurance and claim accruals		9,670			10,372
Revolving credit facility		215,500			—

Total current liabilities		313,890			88,306
Revolving credit facility		—			197,000
Insurance and claim accruals, net of current portion		4,117			4,720
Deferred compensation		7,622			7,415
Deferred income taxes		56,815			56,392
Other liabilities		3,674			3,625
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $0.001 per share; 100,000 authorized shares; no shares issued and outstanding		—			—
Common stock, par value $0.001 per share; 100,000 authorized shares; 32,066 and 31,939 shares issued and outstanding at September 30, 2014 and June 30, 2014, respectively		6,425			6,425
Additional paid-in capital		179,490			180,255
Accumulated other comprehensive loss, net of taxes		(91	)		(119	)
Retained earnings		69,771			72,133

Total shareholders’ equity		255,595			258,694

Total liabilities and shareholders’ equity	$	641,713		$	616,152

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended September 30,
	2014			2013
Revenues	$	212,204		$	193,307
Cost of operations		196,339			173,411

Gross profit		15,865			19,896
General and administrative expenses		17,380			17,408
Gain on sale of property and equipment		(48	)		(315	)

(Loss) income from operations		(1,467	)		2,803
Other expense (income):
Interest expense		2,237			1,807
Other, net		56			(9	)

Total other expense		2,293			1,798

(Loss) income before income taxes		(3,760	)		1,005
Income tax (benefit) expense		(1,398	)		46

Net (loss) income	$	(2,362	)	$	959

(Loss) earnings per share:
Basic	$	(0.07	)	$	0.03

Diluted	$	(0.07	)	$	0.03

Weighted average shares used in computing (loss) earnings per share:
Basic		31,962			31,753

Diluted		31,962			32,273

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

(In thousands)


	Three Months Ended September 30,
	2014			2013
Net (loss) income	$	(2,362	)	$	959
Other comprehensive income (loss):
Interest rate cash flow hedges:
Change in fair value arising during the period, net of income taxes of ($8) and ($65), respectively		(12	)		(102	)
Less: reclassification adjustments included in net (loss) income, net of income taxes of $25 and $22, respectively		40			35

Total other comprehensive income (loss)		28			(67	)

Comprehensive (loss) income	$	(2,334	)	$	892

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended September 30,
	2014			2013
Cash flows from operating activities:
Net (loss) income	$	(2,362	)	$	959
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		9,110			9,998
Non-cash interest expense		309			249
Deferred income taxes		282			1,258
Gain on sale of property and equipment		(48	)		(315	)
Equity compensation expense		810			952
Changes in operating assets and liabilities:
Accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts		(4,872	)		8,992
Inventories, prepaid expenses and other		(2,442	)		(2,489	)
Insurance and claim accruals		(1,305	)		(4,792	)
Accounts payable and other		10,530			(3,287	)

Net cash provided by operating activities		10,012			11,525

Cash flows from investing activities:
Purchases of property and equipment		(4,187	)		(12,251	)
Net proceeds from sale of property and equipment		395			1,631

Net cash used in investing activities		(3,792	)		(10,620	)

Cash flows from financing activities:
Borrowings under revolving credit facility		43,000			34,000
Repayments under revolving credit facility		(24,500	)		(35,000	)
Stock option and employee stock purchase activity, net		(1,051	)		432

Net cash provided by (used in) financing activities		17,449			(568	)


Net increase in cash and cash equivalents		23,669			337
Cash and cash equivalents beginning of year		989			2,578

Cash and cash equivalents end of period	$	24,658		$	2,915

The accompanying notes are an integral part of these condensed consolidated financial statements.

PIKE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended September 30, 2014 and 2013

(Unaudited)

(In thousands, except per share amounts)

1.	Basis of Presentation

On November 5, 2013, Pike Electric Corporation changed its state of incorporation from Delaware to North Carolina (the “Reincorporation”). The Reincorporation was effected by merging Pike Electric Corporation, a Delaware corporation, with and into Pike Corporation, a North Carolina corporation and its wholly-owned subsidiary. In connection with the Reincorporation, Pike Electric Corporation changed its name to “Pike Corporation.” The Reincorporation did not result in any change in the business, management, fiscal year, accounting, location of the principal executive offices or other facilities, capitalization, assets or liabilities of Pike Electric Corporation.

The accompanying condensed consolidated financial statements of Pike Corporation and its wholly-owned subsidiaries (“Pike,” the “Company,” “we,” “us” and “our”) are unaudited and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements included herein contain all adjustments necessary to present fairly our financial position, results of operations and cash flows for the periods indicated. Such adjustments, other than nonrecurring adjustments that have been separately disclosed, are of a normal, recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods. The condensed consolidated balance sheet at June 30, 2014 has been derived from our audited financial statements but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These financial statements should be read in conjunction with our financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

2.	Business

We are one of the largest providers of construction and engineering services for investor-owned, municipal and co-operative electric utilities in the United States. Since our founding in 1945, we have evolved from a specialty non-unionized contractor for electric utilities focused on the distribution sector in the southeastern United States to one of the nation’s largest specialty construction and engineering firms servicing over 300 customers. Our comprehensive suite of energy and communication solutions includes facilities planning and siting, permitting, engineering, design, installation, maintenance and repair of power delivery systems and storm-related services. As a result of the acquisition of Synergetic Design Holdings, Inc. and its subsidiary UC Synergetic, Inc. (together “UCS”) expanding the size and scope of our engineering business, we decided in the first quarter of fiscal 2013 to change our reportable segments. As a result of these changes, we operated our business as two reportable segments: Construction and All Other Operations. On January 1, 2014, as part of the integration of our engineering businesses, Synergetic Design Holdings, Inc. merged with and into Pike Enterprises, Inc., a wholly-owned subsidiary of the Company, and UC Synergetic, Inc. merged with and into Pike Energy Solutions, LLC, the surviving entity of which was named UC Synergetic, LLC. In order to properly align our segments with our current financial reporting structure, we changed the name of our All Other Operations segment to Engineering. Prior fiscal year segment information has been revised to conform to the current-year presentation. See Note 12 for further information on our segments.

shareholder of Parent after completion of the Merger. The Merger has a total transaction value of approximately $595,000, consisting of an equity value of approximately $395,000 and net debt of approximately $200,000. Each of the Company’s shareholders (other than certain excluded shares and dissenting shares) will receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of the Company’s common stock they hold. We incurred approximately $506 in fees and expenses in connection with the Merger Agreement during the three months ended September 30, 2014, $472 of which were non-deductible for income tax purposes.

The board of directors of the Company, acting on the unanimous recommendation of a special committee comprised entirely of independent and disinterested directors, adopted the Merger Agreement and resolved to submit it to the Company’s shareholders for their approval. The transaction is expected to be completed in the second quarter of this fiscal year, subject to receipt of approval from the Company’s shareholders and satisfaction of other customary closing conditions. The Merger Agreement places limitations on the Company’s ability to engage in certain types of transactions without Parent’s consent during the period between the signing of the Merger Agreement and the effective time of the Merger.

We monitor revenue by two categories of services: core and storm-related. We use this breakdown because core services represent ongoing service revenues, most of which are generated by our customers’ recurring maintenance and planning needs, and storm-related services represent additional revenue opportunities that depend on weather conditions.

The following table sets forth our revenues by category of service for the periods indicated:


	Three Months Ended September 30,
	2014				2013
Core services	$	205,291	96.7	%	$	189,672	98.1	%
Storm-related services		6,913	3.3	%		3,635	1.9	%

Total	$	212,204	100.0	%	$	193,307	100.0	%

3.	Assets Held For Sale

Assets held for sale are recorded at the lower of carrying value or fair value, less selling costs. Fair value for this purpose is generally determined based on prices in the used equipment market. Assets held for sale totaled $109 and $72 at September 30, 2014 and June 30, 2014, respectively, and are included in prepaid expenses and other in the condensed consolidated balance sheets. All of the assets held for sale at September 30, 2014 are expected to be sold in the next 12 months.

4.	Derivative Instruments and Hedging Activities

All derivative instruments are recorded on the condensed consolidated balance sheets at their respective fair values. Changes in fair value are recognized either in income (loss) or other comprehensive income (loss) (“OCI”), depending on whether the transaction qualifies for hedge accounting and, if so, the nature of the underlying exposure being hedged and how effective the derivatives are at offsetting price movements in the underlying exposure. The effective portions recorded in OCI are recognized in the condensed consolidated statements of operations when the hedged item affects earnings.

We have used certain derivative instruments to manage risk relating to diesel fuel and interest rate exposure. Derivative instruments are not entered into for trading or speculative purposes. We document all relationships between derivative instruments and related items, as well as our risk-management objectives and strategies for undertaking various derivative transactions.

Interest Rate Risk

We are exposed to market risk related to changes in interest rates on borrowings under our revolving credit facility, which bears interest based on LIBOR, plus an applicable margin dependent upon our total leverage ratio. We use derivative financial instruments to manage exposure to fluctuations in interest rates on our revolving credit facility.

Effective January 2013, we entered into an interest rate swap agreement (the “January 2013 Swap”), with a notional amount of $10,000, to help manage a portion of our interest risk related to our floating-rate debt. Under the January 2013 Swap, we pay a fixed rate of 0.42% and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The January 2013 Swap qualified for hedge accounting and is designated as a cash flow hedge. There was no hedge ineffectiveness for the January 2013 Swap for the three months ended September 30, 2014 and 2013. The swap will expire in June 2015.

Effective December 2012, we entered into two interest rate swap agreements (the “December 2012 Swaps”), with notional amounts of $10,000 and $25,000, respectively, to help manage a portion of our interest risk related to our floating-rate debt. Under the December 2012 Swaps, we pay fixed rates of 0.42% and 0.45%, respectively, and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The December 2012 Swaps qualified for hedge accounting and are designated as cash flow hedges. There was no hedge ineffectiveness for the December 2012 Swaps for the three months ended September 30, 2014 and 2013. These swaps will expire in June 2015.

Effective September 2012, we entered into two interest rate swap agreements (the “September 2012 Swaps”), each with notional amounts of $25,000, to help manage a portion of our interest risk related to our floating-rate debt. Under the September 2012 Swaps, we pay fixed rates of 0.40% and 0.42%, respectively, and receive a rate equivalent to the 30-day LIBOR, adjusted monthly. The September 2012 Swaps qualified for hedge accounting and are designated as cash flow hedges. There was no hedge ineffectiveness for the September 2012 Swaps for the three months ended September 30, 2014 and 2013. These swaps will expire in February and March 2015, respectively.

The net derivative income (loss) recorded in OCI will be reclassified into earnings over the term of the underlying cash flow hedge. The amount that will be reclassified into earnings will vary depending upon the movement of the underlying interest rates. As interest rates decrease, the charge to earnings will increase. Conversely, as interest rates increase, the charge to earnings will decrease.

Diesel Fuel Risk

We have a large fleet of vehicles and equipment that primarily uses diesel fuel. As a result, we have market risk for changes in diesel fuel prices. If diesel prices rise, our gross profit and operating income could be negatively affected due to additional costs that may not be fully recovered through increases in prices to customers.

We periodically enter into diesel fuel swaps to manage our exposure to diesel price volatility. At September 30, 2014, we had economically hedged approximately 37% of our next 12 months of projected diesel fuel purchases at prices ranging from $3.86 to $3.93 per gallon at a weighted-average price of $3.89 per gallon. We are not currently utilizing hedge accounting for any active diesel fuel derivatives and, accordingly, changes in the fair value of the diesel fuel swaps are recognized in the condensed consolidated statements of operations.

Balance Sheet and Statement of Operations Information

The fair value of derivatives at September 30, 2014 and June 30, 2014 is summarized in the following tables:


		Asset Derivatives at September 30, 2014							Liability Derivatives at September 30, 2014
	Balance Sheet Location	Gross Fair Value of Recognized Assets		Gross Fair Value Offset			Net Fair Value		Gross Fair Value of Recognized Liabilities			Gross Fair Value Offset		Net Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued expenses and other	$	—	$	—		$	—	$	(150	)	$	—	$	(150	)

Total derivatives designated as hedging instruments		$	—	$	—		$	—	$	(150	)	$	—	$	(150	)

Derivatives not designated as hedging instruments:
Diesel fuel swaps	Accrued expenses and other	$	—	$	—		$	—	$	(571	)	$	—	$	(571	)

Total derivatives not designated as hedging instruments		$	—	$	—		$	—	$	(571	)	$	—	$	(571	)

Total derivatives		$	—	$	—		$	—	$	(721	)	$	—	$	(721	)


		Asset Derivatives at June 30, 2014							Liability Derivatives at June 30, 2014
	Balance Sheet Location	Gross Fair Value of Recognized Assets		Gross Fair Value Offset			Net Fair Value		Gross Fair Value of Recognized Liabilities			Gross Fair Value Offset		Net Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued expenses and other	$	—	$	—		$	—	$	(195	)	$	—	$	(195	)

Total derivatives designated as hedging instruments		$	—	$	—		$	—	$	(195	)	$	—	$	(195	)

Derivatives not designated as hedging instruments:
Diesel fuel swaps	Prepaid expenses and other	$	167	$	(21	)	$	146	$	(21	)	$	21	$	—

Total derivatives not designated as hedging instruments		$	167	$	(21	)	$	146	$	(21	)	$	21	$	—

Total derivatives		$	167	$	(21	)	$	146	$	(216	)	$	21	$	(195	)

The effects of derivative instruments on the condensed consolidated statements of operations for the three months ended September 30, 2014 and 2013 are summarized in the following tables:

Derivatives designated as cash flow hedging instruments:


	Amount of Gain (Loss) Recognized in OCI (Effective Portion)					Location of Loss Reclassified from Accumulated OCI into Earnings		Amount of Loss Reclassified from Accumulated OCI into Earnings
Three Months Ended September 30,	2014		2013					2014			2013
Interest rate swaps (1)	$	28	$	(67	)		Interest expense	$	(40	)	$	(35	)

Totals	$	28	$	(67	)			$	(40	)	$	(35	)

(1)	Net of income tax.

Derivatives not designated as cash flow hedging instruments:


	Location of (Loss) Gain Recognized in Earnings		Amount of (Loss) Gain Recognized in Earnings
Three Months Ended September 30,			2014			2013
Diesel fuel swaps		Cost of operations	$	(717	)	$	223

Total			$	(717	)	$	223

Accumulated OCI

For the interest rate swaps, the following table summarizes the net derivative losses, net of taxes, deferred into accumulated OCI and reclassified to (loss) income for the periods indicated below.


	Three Months Ended September 30,
	2014			2013
Net accumulated derivative loss deferred at beginning of period	$	(119	)	$	(47	)
Change in fair value		(12	)		(102	)
Reclassification to (loss) net income		40			35

Net accumulated derivative loss deferred at end of period	$	(91	)	$	(114	)

The estimated net amount of the existing losses in OCI at September 30, 2014 expected to be reclassified into net (loss) income over the next 12 months is approximately $91. This amount was computed using the fair value of the cash flow hedges at September 30, 2014 and will differ from actual reclassifications from OCI to net (loss) income during the next 12 months.

Debt

On August 24, 2011, we entered into a $200,000 revolving credit facility that replaced our prior credit facility. Our revolving credit facility matures in August 2015. We repaid outstanding term loans and borrowings on the revolver of our prior credit facility upon entering into our revolving credit facility. The obligations under our revolving credit facility are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic and first-tier foreign subsidiaries and secured on a first-priority basis by security interests (subject to permitted liens) in substantially all assets owned by us and each of our subsidiaries, subject to limited exceptions. Total costs associated with entering into our revolving credit facility were approximately $1,800, including the commitment fee, which are capitalized and being amortized over the term of the debt using the effective interest method.

On June 27, 2012, we exercised the accordion feature of our revolving credit facility and entered into a commitment increase agreement with our lenders thereby increasing the lenders’ commitments by $75,000, from $200,000 to $275,000. Total costs associated with the new accordion commitment were approximately $800, which are capitalized and being amortized over the term of the debt using the effective interest method.

Borrowings under our revolving credit facility bear interest at a variable rate at our option of either (i) the Base Rate, defined as the greater of the Prime Rate (as defined in our revolving credit facility), the Federal Funds Effective Rate (as defined in our revolving credit facility) plus 0.50% or LIBOR plus 1.00%, plus a margin ranging from 0.50% to 1.50% or (ii) LIBOR plus a margin ranging from 2.00% to 3.00%. The margins are applied based on our leverage ratio, which is computed quarterly. We are subject to a commitment fee ranging from 0.375% to 0.625% and letter of credit fees between 2.00% and 3.00% based on our leverage ratio. We are also subject to letter of credit fronting fees of 0.125% per annum for amounts available to be withdrawn.

Our revolving credit facility contains a number of other affirmative and restrictive covenants, including limitations on dissolutions, sales of assets, investments, and indebtedness and liens. On December 17, 2013, we entered into an amendment to our revolving credit facility to restate the leverage covenant ratio. Total costs associated with this amendment were approximately $419, which are capitalized and being amortized over the term of the debt using the effective interest method. Our revolving credit facility includes a requirement that we maintain (i) a leverage ratio, which is the ratio of total debt to adjusted EBITDA (as defined in our revolving credit facility; measured on a trailing four-quarter basis), of no more than 4.00 to 1.00 as of the last day of each fiscal quarter, declining to 3.75 on June 30, 2014 and declining to 3.50 on September 30, 2014 and thereafter, and (ii) a consolidated fixed charge coverage ratio (as defined in our revolving credit facility) of at least 1.25 to 1.00.

As of September 30, 2014, we had $215,500 in borrowings and our availability under our revolving credit facility was $55,500 (after giving effect to $4,000 of outstanding standby letters of credit). Outstanding borrowings were reflected as current liabilities as of September 30, 2014 based on our revolving credit facility’s maturity date. If the proposed Merger is not consummated, we will need to obtain additional financing with a bank before expiration of our revolving credit facility.

6.	Fair Value of Financial Instruments

Fair value rules currently apply to all financial assets and liabilities and for certain nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value. For this purpose, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 — Valuations based on quoted prices in active markets for identical instruments that we are able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

•

Level 2 — Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

•

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At September 30, 2014, we held certain items that are required to be measured at fair value on a recurring basis. These included interest rate derivative instruments and diesel fuel derivative instruments. Derivative instruments are used to hedge our exposure to interest rate fluctuations and a portion of our diesel fuel costs. These derivative instruments currently consist of swaps only. See Note 4 for further information on our derivative instruments and hedging activities.

Our interest rate derivative instruments and diesel fuel derivative instruments consist of over-the-counter contracts, which are not traded on a public exchange. The fair values for our interest rate swaps and diesel fuel swaps are based on current settlement values and represent the estimated amount we would have received or paid upon termination of these agreements. The fair values are derived using pricing models that rely on market observable inputs such as yield curves and commodity forward prices, and therefore are classified as Level 2. We also consider counterparty credit risk in our determination of all estimated fair values. We have consistently applied these valuation techniques in all periods presented.

At September 30, 2014 and June 30, 2014, the carrying amounts and fair values for our interest rate swaps and diesel fuel swaps were as follows:


Description	September 30, 2014			Level 1		Level 2			Level 3
Liability:
Diesel fuel swap agreements	$	(571	)	$	—	$	(571	)	$	—
Interest rate swap agreements		(150	)		—		(150	)		—

Total	$	(721	)	$	—	$	(721	)	$	—


Description	June 30, 2014			Level 1		Level 2			Level 3
Asset:
Diesel fuel swap agreements	$	146		$	—	$	146		$	—
Liability:
Interest rate swap agreements		(195	)		—		(195	)		—

Total	$	(49	)	$	—	$	(49	)	$	—

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair values due to the short-term nature of these instruments. The carrying value of our debt approximates fair value based on the market-determined, variable interest rates.

Assets that are measured at fair value on a nonrecurring basis include assets held for sale. Assets held for sale are valued using Level 2 inputs, primarily observed prices for similar assets in the used equipment market.

7.	Stock-Based Compensation

Compensation expense related to stock-based compensation plans was $810 and $952 for the three months ended September 30, 2014 and 2013, respectively. The income tax benefit recognized for stock-based compensation arrangements was $316 and $371 for the three months ended September 30, 2014 and 2013, respectively. There were 474 and 43 stock option exercises related to stock-based compensation plans for the three months ended September 30, 2014 and 2013, respectively.

8.	Income Taxes

The liability method is used in accounting for income taxes as required by U.S. GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.

In assessing the value of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon these considerations, we provide a valuation allowance to reduce the carrying value of certain of our deferred tax assets to their net expected realizable value, if applicable. We have concluded that no valuation allowance is required for deferred tax assets at September 30, 2014 and June 30, 2014, respectively.

Effective income tax rates of 37.2% and 4.6% for the three months ended September 30, 2014 and 2013, respectively, varied from the statutory federal income tax rate of 35% due to several factors, including changes in permanent tax differences primarily related to the Internal Revenue Code Section 199 deduction, the non-deductibility of certain merger costs for fiscal 2015, the Internal Revenue Code Section 162(m) deduction limitations for compensation, meals and entertainment, state income taxes and gross margin taxes and the relative size of our consolidated (loss) income before income taxes. In addition, North Carolina enacted new legislation on July 23, 2013, which lowered the corporate tax rate in 2014 and will lower it again in 2015. Accordingly, we recognized the income tax accounting effects of the changes in tax rates during the three months ended September 30, 2014 and 2013.

9.	(Loss) Earnings Per Share

The following table sets forth the calculations of basic and diluted (loss) earnings per share:


	Three Months Ended September 30,
	2014			2013
Basic:
Net (loss) income	$	(2,362	)	$	959

Weighted average common shares		31,962			31,753

Basic (loss) earnings per share	$	(0.07	)	$	0.03

Diluted:
Net (loss) income	$	(2,362	)	$	959

Weighted average common shares		31,962			31,753
Potential common stock arising from stock options and restricted stock		—			520

Weighted average common shares — diluted		31,962			32,273

Diluted (loss) earnings per share	$	(0.07	)	$	0.03

All outstanding options and restricted stock awards were excluded from the calculation of diluted loss per share for the three months ended September 30, 2014 because their effect would have been anti-dilutive. Outstanding options and restricted stock awards equivalent to 1,247 shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended September 30, 2013 because their effect would have been anti-dilutive.

10.

Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) related to revenue from contracts with customers which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect the ASU will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.

11.

Commitments and Contingencies

Legal Proceedings

We are from time to time a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, (i) compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract or property damages, (ii) punitive damages, civil penalties or other damages, or (iii) injunctive or declaratory relief. With respect to all such lawsuits, claims and proceedings, we record reserves when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. We do not believe that any of these proceedings, individually or in the aggregate, would be expected to have a material adverse effect on our results of operations, financial position or cash flows.

Performance Bonds and Parent Guarantees

In the ordinary course of business, we are required by certain customers to post surety or performance bonds in connection with services that we provide to them. These bonds provide a guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. As of September 30, 2014, we had $119,300 in surety bonds outstanding. To date, we have not been required to make any reimbursements to our sureties for bond-related costs. We believe that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future. Pike Corporation, from time to time, guarantees the obligations of its wholly-owned subsidiaries, including obligations under certain contracts with customers.

Collective Bargaining Agreements

Several of our subsidiaries are party to collective bargaining agreements with unions representing craftworkers performing field construction operations. The collective bargaining agreements expire at various times and have typically been renegotiated and renewed on terms similar to the ones contained in the expiring agreements. The agreements require those subsidiaries to pay specified wages, provide certain benefits to their respective union employees and contribute certain amounts to multi-employer pension plans and employee benefit trusts. A subsidiary’s multi-employer pension plan contribution rates generally are specified in the collective bargaining agreements (usually on an annual basis), and contributions are made to the plans on a “pay-as-you-go” basis based on its union employee payrolls, which cannot be determined for future periods because the location and number of union employees that any such subsidiary employs at any given time and the plans in which it may participate vary depending on the projects it has ongoing at any time and the need for union resources in connection with those projects. If any of these subsidiaries withdrew from, or otherwise terminated its participation in, one or more multi-employer pension plans or if the plans were to otherwise become underfunded, such subsidiary could be assessed liabilities for additional contributions related to the underfunding of these plans. We are not aware of any material amounts of withdrawal liability that have been incurred as a result of a withdrawal by any of our subsidiaries from any multi-employer defined benefit pension plans.

Indemnities

We generally indemnify our customers for the services we provide under our contracts, as well as other specified liabilities, which may subject us to indemnity claims and liabilities and related litigation. As of September 30, 2014, we do not believe that any future indemnity claims against us would have a material adverse effect on our results of operations, financial position or cash flows.

12.

Business Segment Information

As a result of the acquisition of UCS expanding the size and scope of our engineering business, we decided in the first quarter of fiscal 2013 to change our reportable segments. Prior to December 31, 2013, our operations were managed in four business units, which were shown as two reportable segments for financial reporting purposes: Construction and All Other Operations. These segments were organized principally by service category. Each segment had its own management that was responsible for the operations of the segment’s businesses. On January 1, 2014, as a result of the merger of UC Synergetic, Inc. into Pike Energy Solutions, LLC discussed in Note 2, changes in management reflecting sole leadership over the combined engineering entity, and in order to properly align our segments with our current financial reporting structure, we changed the name of our All Other Operations segment to Engineering and will manage our operations as two business units. Prior fiscal year segment information has been revised to conform to the current-year presentation.

The types of services from which each reportable segment derives its revenues are as follows:

•

Construction includes installation, maintenance and repair of power delivery systems, including storm restoration services. The Construction segment accounted for 79% and 81% of consolidated revenues for the three months ended September 30, 2014 and 2013, respectively.

•

Engineering includes siting, permitting, engineering and design of power and communication delivery systems, including storm assessment and inspection services.

We evaluate the operating performance of our segments based upon segment income from operations. The Other column below represents certain corporate general and administrative costs not allocated to the segments. We review total assets at the consolidated level and, accordingly, those amounts have not been disclosed for each reportable segment. The accounting policies of the segments are consistent with those described in Note 2 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.


	Three Months Ended September 30, 2014
	Construction			Engineering			Other			Total
Core services	$	161,603		$	51,188		$	—		$	212,791
Less: Intersegment revenues		(784	)		(6,716	)		—			(7,500	)

Core services, net		160,819			44,472			—			205,291
Storm-related services		6,913			—			—			6,913

Revenues, net	$	167,732		$	44,472		$	—		$	212,204
(Loss) income from operations	$	(2,709	)	$	1,388		$	(146	)	$	(1,467	)
Depreciation and amortization	$	7,849		$	1,261		$	—		$	9,110
Purchases of property and equipment	$	3,067		$	1,120		$	—		$	4,187


	Three Months Ended September 30, 2013
	Construction			Engineering			Other			Total
Core services	$	154,171		$	48,972		$	—		$	203,143
Less: Intersegment revenues		(112	)		(13,359	)		—			(13,471	)

Core services, net		154,059			35,613			—			189,672
Storm-related services		3,414			221			—			3,635

Revenues, net	$	157,473		$	35,834		$	—		$	193,307
Income (loss) from operations	$	1,314		$	1,571		$	(82	)	$	2,803
Depreciation and amortization	$	8,686		$	1,312		$	—		$	9,998
Purchases of property and equipment	$	12,127		$	124		$	—		$	12,251

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended June 30, 2014. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to inaccurate assumptions and known or unknown risks and uncertainties, including those identified in “Uncertainty of Forward-Looking Statements and Information” below in this Item 2 and in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Overview

Over the past few years, we have reshaped our business platform and service territory significantly from being a distribution construction company based primarily in the southeastern United States to a national energy and communication solutions provider. We have done this organically and through strategic acquisitions of companies with complementary service offerings and geographic footprints. Our acquisition of Shaw Energy Delivery Services, Inc. on September 1, 2008 expanded our operations into engineering, design, procurement and construction management services, including in the renewable energy arena, and significantly enhanced our substation and transmission construction capabilities. This acquisition also extended our geographic presence across the continental United States. Our acquisition of Facilities Planning & Siting, PLLC on June 30, 2009 enabled us to provide siting and planning services to our customers, which positions us to be involved at the conceptual stage of our customers’ projects. On June 30, 2010, we acquired Klondyke Construction LLC (“Klondyke”), based in Phoenix, Arizona, which complemented our existing engineering and design capabilities with construction services related to substation, transmission and renewable energy infrastructure. Our August 1, 2011 acquisition of Pine Valley Power, Inc. (“Pine Valley”), located near Salt Lake City, Utah, further strengthened our substation, transmission and distribution construction service capabilities in the western United States. We believe that our acquisitions of Klondyke and Pine Valley allow us to continue to expand our engineering and construction services in the western United States and better compete in markets with unionized workforces. Our July 2, 2012 acquisition of Synergetic Design Holdings, Inc. and its subsidiary, UC Synergetic, Inc. (together “UCS”), headquartered in Charlotte, North Carolina, significantly expanded our ability to provide outsourced engineering and design services for distribution powerline, transmission and substation projects and other technical services to our customers and is consistent with our long-term growth strategy. The UCS acquisition also added new engineering and design services for the communications industry as well as storm assessment and inspection services. UCS’s engineering capabilities complement our existing portfolio of companies, add scale and extend our footprint into the Northeast and Midwest.

On August 4, 2014, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Pioneer Parent, Inc., a Delaware corporation (“Parent”), and Pioneer Merger Sub, Inc., a North Carolina corporation and a direct, wholly-owned subsidiary of Parent (“Merger Sub”), providing for the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Parent. Parent is owned by an investment fund affiliated with Court Square Capital Partners. J. Eric Pike, Chairman and Chief Executive Officer of the Company, will be a director, officer and shareholder of Parent after completion of the Merger. The Merger has a total transaction value of approximately $595 million, consisting of an equity value of approximately $395 million and net debt of approximately $200 million. Each of the Company’s shareholders (other than certain excluded shares and dissenting shares) will receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of the Company’s common stock they hold. We incurred approximately $506,000 in fees and expenses in connection with the Merger Agreement during the three months ended September 30, 2014, $472,000 of which were non-deductible for income tax purposes.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make certain estimates and assumptions for interim financial information that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate these estimates and assumptions, including those related to revenue recognition for work in progress, allowance for doubtful accounts, self-insured claims liability, valuation of goodwill and other intangible assets, asset lives and salvage values used in computing depreciation and amortization, including amortization of intangibles, and accounting for income taxes, contingencies, litigation and stock-based compensation. Application of these estimates and assumptions requires the exercise of judgment as to future uncertainties and, as a result, actual results could differ from these estimates. Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” included in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014 for further information regarding our critical accounting policies and estimates.

Results of Operations

The following table sets forth selected statements of operations data as approximate percentages of revenues for the periods indicated:


	Three Months Ended September 30,
	2014			2013
Revenues:
Core services		96.7	%		98.1	%
Storm-related services		3.3	%		1.9	%

Total		100.0	%		100.0	%
Cost of operations		92.5	%		89.7	%

Gross profit		7.5	%		10.3	%
General and administrative expenses		8.2	%		9.0	%
Gain on sale of property and equipment		0.0	%		-0.2	%

(Loss) income from operations		-0.7	%		1.5	%
Interest expense and other, net		1.1	%		1.0	%

(Loss) income before income taxes		-1.8	%		0.5	%
Income tax (benefit) expense		-0.7	%		0.0	%

Net (loss) income		-1.2	%		0.5	%

Consolidated Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues. Revenues increased 10%, or $18.9 million, to $212.2 million for the three months ended September 30, 2014 from $193.3 million for the three months ended September 30, 2013. The increase was attributable to a $3.3 million increase in storm-related revenues and a $15.6 million increase in core revenue. Our core business increase is due to continued growth in our Engineering segment, specifically communication engineering growth in the southeastern United States and an increase in solar construction revenues in California as compared to the same period in the prior fiscal year. Our storm-related revenues are highly volatile and unpredictable.

Gross Profit. Gross profit decreased 20%, or $4.0 million, to $15.9 million for the three months ended September 30, 2014 from $19.9 million for the three months ended September 30, 2013. Gross profit as a percentage of revenues decreased to 7.5% for the three months ended September 30, 2014 from 10.3% for the same period in the prior fiscal year. Gross profit during the three months ended September 30, 2014 was negatively impacted by performance on two large, fixed price solar construction projects for a customer in California at our Klondyke business. These projects incurred numerous issues with labor availability and customer-related issues that caused continuous delays and cost overruns. These two projects started in July 2014 and are estimated to be complete in December 2014. We recorded a loss of $8.5 million on these projects during the three months ended September 30, 2014, which includes a $2.3 million reserve for anticipated costs to complete the projects subsequent to September 30, 2014. Efforts continue to obtain contractual change orders or other remedies to reduce our overall loss on these two projects but the amounts of any changes are not estimable at this time. We experienced losses on five specific jobs in California for two customers at our western subsidiary companies which had a negative impact on our gross profit for the three months ended September 30, 2013.

General and Administrative Expenses. General and administrative expenses were unchanged at $17.4 million for the three months ended September 30, 2014 and 2013. As a percentage of revenues, general and administrative expenses decreased to 8.2% for the three months ended September 30, 2014 from 9.0% for the same period in the prior fiscal year.

Interest Expense and Other, Net. Interest expense and other, net increased 28% to $2.3 million for the three months ended September 30, 2014 from $1.8 million for the three months ended September 30, 2013. The increase was primarily attributable to maintaining a higher outstanding balance on our revolving credit facility during most of the three months ended September 30, 2014 compared to the same period in the prior fiscal year. See Note 5, “Debt,” of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report for further information on our revolving credit facility.

Income Tax (Benefit) Expense. Income tax (benefit) expense was ($1.4) million and $46,000 for the three months ended September 30, 2014 and 2013, respectively. Effective income tax rates of 37.2% and 4.6% for the three months ended September 30, 2014 and 2013, respectively, varied from the statutory federal income tax rate of 35% due to several factors, including changes in permanent tax differences primarily related to the Internal Revenue Code Section 199 deduction, the non-deductibility of certain merger costs for fiscal 2015, the Internal Revenue Code Section 162(m) deduction limitations for compensation, meals and entertainment, state income taxes and gross margin taxes and the relative size of our consolidated (loss) income before income taxes. In addition, North Carolina enacted new legislation on July 23, 2013, which lowered the corporate tax rate in 2014 and will lower it again in 2015. Accordingly, we recognized the income tax accounting effects of the changes in tax rates during the three months ended September 30, 2014 and 2013.

Operating Results by Segment — Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Construction


	Three Months Ended September 30,
	2014			2013			% Change
Construction revenue	$	168.5		$	157.6
Intersegment eliminations		(0.8	)		(0.1	)

Total revenues, net	$	167.7		$	157.5			6.5	%
Segment (loss) income from operations	$	(2.7	)	$	1.3			-306.2	%

Revenues. Construction revenues increased 6.5%, or $10.2 million, to $167.7 million for the three months ended September 30, 2014 from $157.5 million for the three months ended September 30, 2013.

The following table contains supplemental information on construction revenue and percentage changes by category for the periods indicated:


	Three Months Ended September 30,
Category of Revenue	2014		2013		% Change
Distribution and other	$	124.4	$	115.5		7.7	%
Transmission and substation		36.4		38.6		-5.7	%

Total core revenue		160.8		154.1		4.3	%
Storm restoration services		6.9		3.4		102.9	%

Total	$	167.7	$	157.5		6.5	%

•

Distribution and Other Revenues. Our combined revenues for overhead and underground distribution services and other revenue increased 7.7% for the three months ended September 30, 2014 from the same period in the prior fiscal year. This increase was primarily attributable to two large, fixed price solar construction projects for a customer in California at our Klondyke business that began during the three months ended September 30, 2014.

Our underground distribution services showed a slight improvement compared to the same period in the prior fiscal year but continue to be significantly less than volumes prior to fiscal 2008. The majority of our distribution services are provided to investor-owned, municipal and co-operative utilities under master services agreements (“MSAs”). Services provided under these MSAs include both overhead and underground powerline distribution services. Our MSAs do not guarantee a minimum volume of work. The MSAs provide a framework for core and storm restoration pricing and provide an outline of the service territory in which we will work or the percentage of overall outsourced distribution work we will provide for the customer. Our MSAs also provide a platform for multi-year relationships with our customers. We can easily increase or decrease staffing for a customer without exhaustive contract negotiations.

Other revenues in this category include primarily solar construction projects.

•

Transmission and Substation Revenues. Transmission and substation revenues decreased 5.7% from the same period in the prior fiscal year. A significant amount of our transmission and substation projects are fixed price, site specific projects and revenues can vary based on start dates of the projects and mobilization time. The decrease for the three months ended September 30, 2014 was primarily related to our transmission and substation services in the western United States in which large projects for the three months ended September 30, 2013 were completed prior to the three months ended September 30, 2014. The substation construction market remains very competitive especially in the southeastern United States.

Segment (Loss) Income from Operations. Segment (loss) income from operations decreased 306.2% to ($2.7) million for the three months ended September 30, 2014 from $1.3 million for the three months ended September 30, 2013. Segment (loss) income from operations as a percentage of revenues decreased to (1.6%) for the three months ended September 30, 2014 from 0.8% for the same period in the prior fiscal year. Segment (loss) income from operations was negatively impacted from the factors discussed above under “Gross Profit” with respect to the three months ended September 30, 2014. In addition, we were negatively impacted by the mark-to-market adjustment during the three months ended September 30, 2014 that caused a $0.7 million increase in our cost of operations for that period. We benefited from a mark-to-market adjustment on our diesel hedging program that provided a $0.2 million decrease in our cost of operations during the three months ended September 30, 2013.

Engineering


	Three Months Ended September 30,
	2014			2013			% Change
Engineering core revenue	$	51.2		$	49.0
Intersegment eliminations		(6.7	)		(13.4	)

Total core revenue, net	$	44.5		$	35.6			24.9	%
Storm assessment and inspection		—			0.2

Total revenues, net	$	44.5		$	35.8			24.1	%
Segment income from operations	$	1.4		$	1.6			-11.6	%

Revenues. Engineering revenues increased 24.9%, or $8.9 million, to $44.5 million for the three months ended September 30, 2014 from $35.6 million for the three months ended September 30, 2013. Engineering revenues benefited from increased growth in our communication engineering business with an existing customer in the southeastern United States. In addition, engineering revenues may fluctuate, especially on a quarterly basis, due to the timing of material procurement revenues. Material procurement services, if they are provided, are typically on our EPC projects that are administered by Engineering. As a result, our revenue will fluctuate due to the level of material procurement associated with our EPC projects.

Segment Income from Operations. Segment income from operations decreased 11.6% to $1.4 million for the three months ended September 30, 2014 from $1.6 million for the three months ended September 30, 2013. Segment income from operations as a percentage of revenues decreased to 3.1% for the three months ended September 30, 2014 from 4.5% for the same period in the prior fiscal year. Our segment income from operations for the three months ended September 30, 2014 was negatively impacted from increased non-productive start-up time incurred on additional new large communication engineering projects with an existing customer.

Liquidity and Capital Resources

Our primary cash needs have been for working capital, capital expenditures, and payments under our revolving credit facility. Our primary source of cash for the three months ended September 30, 2014 and 2013 was through borrowings under our revolving credit facility and cash from operations. As of September 30, 2014 and 2013, we had $1.4 million in accounts receivable from storm-related jobs. The Merger Agreement described in Note 2, “Business,” of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report place certain limitations on the amount of debt we can assume and use of cash, on certain repurchases of common stock, on the declaration of certain dividends, on the pursuit of business acquisitions, and on capital expenditures.

We need working capital to support seasonal variations in our business, primarily due to the impact of weather conditions on the electric infrastructure and the corresponding spending by our customers on electric service and repairs. The increased service activity during storm-related events temporarily causes an excess of customer billings over customer collections, leading to increased accounts receivable during those periods. In the past, we have utilized borrowings under the revolving portion of our credit facility and cash on hand to satisfy normal cash needs during these periods.

On August 24, 2011, we entered into a $200.0 million revolving credit facility that replaced our prior credit facility. Our revolving credit facility matures in August 2015. We repaid outstanding term loans and borrowings on the revolver of our prior credit facility upon entering into our revolving credit facility. On June 27, 2012, we exercised the accordion feature of the revolving credit facility and entered into a commitment increase agreement with our lenders thereby increasing the lenders’ commitments by $75.0 million, from $200.0 million to $275.0 million.

As of September 30, 2014, we had $215.5 million in borrowings and our availability under our revolving credit facility was $55.5 million (after giving effect to $4.0 million of outstanding standby letters of credit). Outstanding borrowings were reflected as

current liabilities as of September 30, 2014 based on our revolving credit facility’s maturity date. If the proposed merger is not consummated, we will need to obtain additional financing with a bank before expiration of our revolving credit facility. This borrowing availability is subject to, and potentially limited by, our compliance with the covenants of our revolving credit facility, which are discussed below.

We believe that our cash flow from operations, available cash and cash equivalents, and borrowings available under our revolving credit facility will be adequate to meet our liquidity needs in the ordinary course of business for the foreseeable future. However, our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond our control. In addition, if we fail to comply with the covenants contained in our revolving credit facility, we may be unable to access our revolving credit facility upon which we depend for letters of credit and other short-term borrowings. This would have a negative impact on our liquidity and require us to obtain alternative short-term financing.

Changes in Cash Flows


	Three Months Ended September 30,
	2014			2013
	(In millions)
Net cash provided by operating activities	$	10.0		$	11.5
Net cash used in investing activities	$	(3.8	)	$	(10.6	)
Net cash provided by (used in) financing activities	$	17.4		$	(0.6	)

Net cash provided by operating activities decreased to $10.0 million for the three months ended September 30, 2014 from $11.5 million for the three months ended September 30, 2013. The decrease in operating cash flows was primarily due to a net loss during the three months ended September 30, 2014 and timing of working capital requirements.

Net cash used in investing activities decreased to $3.8 million for the three months ended September 30, 2014 from $10.6 million for the three months ended September 30, 2013. This decrease was primarily due to decreased capital expenditures during the three months ended September 30, 2014. Capital expenditures for both periods consisted primarily of purchases of vehicles and equipment used to service our customers.

Net cash provided by financing activities was $17.4 million for the three months ended September 30, 2014 compared to net cash used in financing activities of $0.6 million for the three months ended September 30, 2013. This increase was primarily due to additional borrowings used to fund working capital requirements, including additional funding for requirements related to losses on two large, fixed price solar construction projects for a customer in California at our Klondyke business during the three months ended September 30, 2014.

EBITDA to U.S. GAAP Reconciliation

EBITDA is a non-U.S. GAAP financial measure that represents the sum of net (loss) income, income tax (benefit) expense, interest expense, depreciation and amortization. EBITDA is used internally when evaluating our operating performance and management believes that EBITDA allows investors to make a more meaningful comparison between our core business operating results on a consistent basis over different periods of time, as well as with those of other similar companies. Management believes that EBITDA, when viewed with our results under U.S. GAAP and the accompanying reconciliation, provides additional information that is useful for evaluating the operating performance of our business without regard to potential distortions. Additionally, management believes that EBITDA permits investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. This non-U.S. GAAP measure excludes certain cash expenses that we are obligated to make. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. The table below provides a reconciliation between net (loss) income and EBITDA.


	Three Months Ended September 30,
	2014			2013
	(In millions)
Net (loss) income	$	(2.4	)	$	1.0
Adjustments:
Interest expense		2.2			1.8
Income tax (benefit) expense		(1.4	)		—
Depreciation and amortization		9.1			10.0

EBITDA	$	7.5		$	12.8

EBITDA decreased 41% to $7.5 million for the three months ended September 30, 2014 from $12.8 million for the three months ended September 30, 2013. The decreased EBITDA for the three months ended September 30, 2014 was primarily due to the negative performance on two large, fixed price solar construction projects for a customer in California at our Klondyke business that began during the three months ended September 30, 2014.

Credit Facility

On August 24, 2011, we entered into a $200.0 million revolving credit facility that replaced our prior credit facility. Our revolving credit facility matures in August 2015. On June 27, 2012, we exercised the accordion feature of the revolving credit facility and entered into a commitment increase agreement with our lenders thereby increasing the lenders’ commitments by $75.0 million, from $200.0 million to $275.0 million.

The obligations under our revolving credit facility are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic and first-tier foreign subsidiaries and secured on a first-priority basis by security interests (subject to permitted liens) in substantially all assets owned by us and each of our subsidiaries, subject to limited exceptions.

Our revolving credit facility contains a number of other affirmative and restrictive covenants, including limitations on dissolutions, sales of assets, investments, and indebtedness and liens. On December 17, 2013, we entered into an amendment to our revolving credit facility to restate the leverage covenant ratio. Total costs associated with this amendment were approximately $419,000, which are capitalized and being amortized over the term of the debt using the effective interest method. Our revolving credit facility includes a requirement that we maintain (i) a leverage ratio, which is the ratio of total debt to adjusted EBITDA (as defined in our revolving credit facility; measured on a trailing four-quarter basis), of no more than 4.00 to 1.00 as of the last day of each fiscal quarter, declining to 3.75 on June 30, 2014 and declining to 3.50 on September 30, 2014 and thereafter, and (ii) a consolidated fixed charge coverage ratio (as defined in our revolving credit facility) of at least 1.25 to 1.00. At September 30, 2014, we were in compliance with such covenants with a leverage ratio and a fixed charge coverage ratio of 3.14 and 1.78, respectively.

Concentration of Credit Risk

We are subject to concentrations of credit risk related primarily to our cash and cash equivalents and accounts receivable. We maintain substantially all of our cash investments with what we believe to be high credit quality financial institutions. We grant credit under normal payment terms, generally without collateral, to our customers, which include electric power companies, governmental entities, general contractors and builders, and owners and managers of commercial and industrial properties located in the United States. Consequently, we are subject to potential credit risk related to changes in business and economic factors throughout the United States. However, we generally have certain statutory lien rights with respect to services provided.

Off-Balance Sheet Arrangements

As is common in our industry, we have entered into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected in our balance sheets. Our significant off-balance sheet transactions include liabilities associated with non-cancelable operating leases, including sale-leaseback arrangements, letter of credit obligations and surety guarantees entered into in the normal course of business. We have not engaged in any off-balance sheet financing arrangements through special purpose entities.

Leases

In the ordinary course of business, we enter into non-cancelable operating leases for certain of our facility, vehicle and equipment needs. These leases allow us to conserve cash by paying a monthly lease rental fee for use of the related facilities, vehicles and equipment rather than purchasing them. The terms of these agreements vary from lease to lease, including with renewal options and escalation clauses. We may decide to cancel or terminate a lease before the end of its term, in which case we are typically liable to the lessor for the remaining lease payments under the term of the lease.

Letters of Credit

Certain of our vendors require letters of credit to ensure reimbursement for amounts they are disbursing on our behalf. In addition, from time to time some customers require us to post letters of credit to ensure payment to our subcontractors and vendors under those contracts and to guarantee performance under our contracts. Such letters of credit are generally issued by a bank or similar financial institution. The letter of credit commits the issuer to pay specified amounts to the holder of the letter of credit if the holder claims that we have failed to perform specified actions. If this were to occur, we would be required to reimburse the issuer of the letter of credit. Depending on the circumstances of such a reimbursement, we may also have to record a charge to earnings for the reimbursement. We do not believe that it is likely that any material claims will be made under a letter of credit in the foreseeable future. We use our revolving credit facility to issue letters of credit. As of September 30, 2014, we had $4.0 million of standby letters of credit issued under our revolving credit facility primarily for insurance and bonding purposes. Our ability to obtain letters of credit under the revolving portion of our revolving credit facility is conditioned on our continued compliance with the affirmative and negative covenants of our revolving credit facility.

Performance Bonds and Parent Guarantees

In the ordinary course of business, we are required by certain customers to post surety or performance bonds in connection with services that we provide to them. These bonds provide a guarantee to the customer that we will perform under the terms of a contract and that we will pay subcontractors and vendors. If we fail to perform under a contract or to pay subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. We must reimburse the surety for any expenses or outlays it incurs. As September 30, 2014, we had $119.3 million in surety bonds outstanding. To date, we have not been required to make any reimbursements to our sureties for bond-related costs. We believe that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future. Pike Corporation, from time to time, guarantees the obligations of its wholly-owned subsidiaries, including obligations under certain contracts with customers.

Seasonality; Fluctuations of Results

Because our construction-related services are performed outdoors, our results of operations can be subject to seasonal variations due to weather conditions. These seasonal variations affect both our core and storm-related services. Extended periods of rain affect the deployment of our core crews, particularly with respect to underground work. During the winter months, demand for construction work is generally lower due to inclement weather. In addition, demand for construction work generally increases during the spring months due to improved weather conditions and is typically the highest during the summer due to better weather conditions. Due to the unpredictable nature of storms, the level of storm-related revenues fluctuates from period to period.

Recent Accounting Pronouncements

See Note 10, “Recent Accounting Pronouncements,” of the Notes to Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Uncertainty of Forward-Looking Statements and Information

This Quarterly Report on Form 10-Q, as well as information included in future filings by Pike Corporation with the Securities and Exchange Commission (the “SEC”) and information contained in written material, press releases and oral statements issued by or on behalf of the Company, contains, or may contain, certain “forward-looking statements” under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include information relating to, among other matters, our future prospects, developments and business strategies for our operations. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our company and the industry in which we operate and management’s beliefs and assumptions. Words such as “may,” “will,” “should,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “predict,” “potential,” “project,” “continue,” “believe,” “seek,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements include, among others, statements relating to:

•

our expectation that, if diesel prices rise, our gross profit and operating income could be negatively affected due to additional costs that may not be fully recovered through increases in prices to customers;

•

our expectation that the net amount of the existing losses in OCI at September 30, 2014 reclassified into net (loss) income over the next 12 months will be approximately $91,000;

•

our belief that the lawsuits, claims and other legal proceedings that arise in the ordinary course of business will not be expected to have, individually or in the aggregate, a material adverse effect on our results of operations, financial position or cash flows;

•

our belief that it is unlikely that we will have to fund significant claims under our surety arrangements in the foreseeable future;

•

our belief that any future indemnity claims against us would not have a material adverse effect on our results of operations, financial position or cash flows;

•

our belief that our experienced management team has positioned us to benefit from the substantial long-term growth drivers in our industry by leveraging our core competencies as a company primarily focused on providing a broad range of electric infrastructure services principally for utility customers;

•

our belief that our acquisitions of Klondyke and Pine Valley allow us to continue to expand our engineering and construction services in the western United States and better compete in markets with unionized workforces;

•

our belief that our cash flow from operations, available cash and cash equivalents, and borrowings available under our revolving credit facility will be adequate to meet our liquidity needs in the ordinary course of business for the foreseeable future;

•

our expectation that our ability to satisfy our obligations or to fund planned capital expenditures will depend on our future performance, and our belief that this is subject to a certain extent to general economic, financial, competitive, legislative, regulatory and other factors beyond our control;

•

the possibility that if we fail to comply with the covenants contained in our revolving credit facility, we may be unable to access our revolving credit facility upon which we depend for letters of credit and other short-term borrowings, and that this would have a negative impact on our liquidity and require us to obtain alternative short-term financing;

•

our belief that the financial institutions with whom we maintain substantially all of our cash investments are high credit quality financial institutions; and

•

our belief that it is unlikely that any material claims will be made under a letter of credit in the foreseeable future.

These statements are based on certain assumptions and analyses made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances, and involve risks and uncertainties that may cause actual future activities and results of operations to be materially different from historical or anticipated results. Factors that could impact those differences or adversely affect future periods include, but are not limited to, the factors set forth in “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Caution should be taken not to place undue reliance on our forward-looking statements, which reflect the expectations of management of Pike only as of the time such statements are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about our market risks, see Item 7A of Part II of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has established and maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we evaluated the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) of the Exchange Act) pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on this evaluation, these officers have concluded that, as of September 30, 2014, our disclosure controls and procedures were effective to provide reasonable assurance of achieving their objectives.

Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Design and Operation of Control Systems

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if

any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and breakdowns can occur because of simple errors or mistakes. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

There have been no material changes from the risk factors disclosed in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2014.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities

The following table provides information about repurchases of our common stock during the three months ended September 30, 2014:


Period	Total Number of Shares Purchased (1)		Average Price Paid per Share ($)		Total Number of Shares Purchased as Part of Publically Announced Program		Approximate Dollar Value of Shares that May Yet be Purchsaed under the Program
July 1, 2014 through July 31, 2014		—		—		—		—
August 1, 2014 through August 31, 2014		1,707		11.88		—		—
September 1, 2014 through September 30, 2014		—		—		—		—

Total shares purchased for the three months ended September 30, 2014		1,707

(1)	Represents shares of common stock withheld for income tax purposes in connection with the vesting of shares of restricted stock issued to a certain employee.

Item 6.

Exhibits


Exhibit		Description

3.1		Amended and Restated Articles of Incorporation of Pike Corporation (incorporated by reference to Exhibit 3.1 on our Current Report on Form 8-K filed November 6, 2013)

3.2		Amended and Restated Bylaws of Pike Corporation (incorporated by reference to Exhibit 3.2 on our Annual Report on Form 10-K filed September 12, 2014)

31.1		Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2		Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1		Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

101		Financial statements (unaudited) from the Quarterly Report on Form 10-Q of Pike Corporation for the quarter ended September 30, 2014, filed on November 10, 2014, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PIKE CORPORATION
	(Registrant)

Date: November 10, 2014	By:	/s/ J. Eric Pike
		J. Eric Pike
		Chairman, Chief Executive Officer and President

Date: November 10, 2014	By:	/s/ Anthony K. Slater
		Anthony K. Slater
		Executive Vice President and Chief Financial Officer

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